Post-Vacation Thoughts

Wow. What a week and a half to take a vacation. Either it was a great time to miss, or it was the opposite. Obviously I’m biased, but I’d have to go with the former. Sometimes the daily volatility of the market sends investors on more of an emotional roller coaster than anything else, and that isn’t usually helpful. After all, roller coasters end up right where they started for the most part.

It looks like the S&P 500 traded in a 8.9% intraday range during the 8 trading days I missed, from 1370 all the way up to 1503. Despite that, when all the dust settled, stock prices dropped only 2 percent during my time away, so really my trip (I was in Boston and Cape Cod) saved me some emotional highs and lows.

I haven’t had a lot of time to catch up yet, but one thing did get my attention, so I thought I would share. I don’t know if it got a lot of airtime or not (likely not given it was pretty eventful with the Fed moves, etc), but the market finally got the long awaited 10 percent correction (at least on an intraday basis — 11.9% — it was only 9.6% on a closing basis).

Now, normally this would be unimportant enough that I might not even mention it, but there are a couple reasons why I think it is notable this time around. First, there were tons of people who were refusing to jump in with excess cash until we got that “official” drop. It sounds silly, but when investment strategists think the market is overbought, as many had for several months as the S&P crossed 1400 and then 1500, they need a significant sell-off to be convinced some excesses are removed. I have no doubt that market players who were waiting for a 10% down move are beginning to put some cash to work slowly.

Normally, a 10 percent correction is no big deal. We expect them to happen. I don’t have any statistics handy, but I’d guess we see one every year or so on average. They are normal and very healthy. Amazingly though, we had gone four and a half years without a full 10 percent drop in the S&P 500 index. This worried a lot of people because it was the longest streak ever without a sizable market drop. I don’t think it signaled the end of the world or anything to anybody, but when you go that long, you are due for a fall, and while nobody knows exactly when it will happen, it still prevents investors from getting overly bullish and firmly committing investment funds. The streak, in the eyes of many, was simply a symbol of the times, an overbought market that was being powered by many things, including the private equity M&A boom, which appears to be normalizing.

As I comb through the individual company news times of interest from the last week and a half, I’ll be sure to share anything that catches my eye that would have otherwise been posted had I been in the office. Feel free to let me know if there is anything you would like me to write about in coming days. It’s good to be back, and thanks for your patience during my vacation time.